The Legal 500

On 31st December, 2007, groundbreaking new regulations reforming the mutual funds market came into force. A series of amendments have been made to the Joint Investment Trust Regulations. The purpose of the amendments is to relax the various restrictions applying to mutual funds, and in doing so, to broaden the investment possibilities of mutual funds. One major example is permitting a "special fund" to invest in hedge funds. A further notable change is legislating new regulations regarding the classification of mutual funds for the purpose of publication. These regulation regulate the publication of information relating to units in mutual funds, including redemption price and yield thereof, which aim to improve the quality of information provided to the investing public. The publications will also include classification of the mutual funds into classes and subclasses, ranked in accordance with the type and maximum risk relating thereto. An additional goal of this amendment is to create a better basis for comparing the various available mutual funds.

Changes under the Joint Investment Trust Regulations (Assets that may be bought and Held by the Fund and their Maximum Amounts)

The regulations major change allows an offer to the public of new types of open funds, such as Money Market Funds as follows:

1. Money (Market) Fund- an open fund which is allowed to invest only in conservative Assets, which are relatively highly rated, debentures, currency-linked notes, short term loans, fixed-term deposits and cash. The fund invests in short term assets, having a term of up to a year. The amendment includes additional general miscellaneous provisions, the purpose of which is limiting the risk involved. The purpose of the amendment is to provide an alternative to bank deposits.

2. Israeli Fund of Funds - an Open Fund which invests mainly in units of other Israeli mutual funds (the inclusive value of which may not fall below a certain level) that are under the management of the same fund manager. In addition to the units, an Israeli Fund of Funds is allowed to invest in fixed-term deposits and cash. It should be noted that an Israeli Fund of Funds can not hold units in other Israeli Fund of funds.

3. Foreign Fund of Funds - an Open Fund which invests mainly in other foreign open mutual funds, the units of which can be redeemed on each trading day in the relevant foreign market (the inclusive value of which may not fall below a certain level). In addition to such units, a Foreign Fund of Funds is allowed to invest in fixed-term deposits and in cash. It should be noted that the amendment sets out certain criteria pursuant to which units a Foreign Fund of Funds is allowed to invest.

Closed Fund

Another Major change focuses on Special Funds, which is a type of closed fund that may permit the holding of shares in hedge funds under certain conditions.

Changes in the maximum levels of assets

In addition, the amendment implemented a series of changes regarding the maximum level of assets that mutual funds are allowed to hold including: shares in index funds traded outside of Israel, various securities, debentures, including foreign securities, notes, non-tradable assets, units in funds which are not fund of funds, hedge fund shares in special funds, fixed-term deposits, cash and options.

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